A newly introduced bill in the United States Senate has set its sights on reshaping the stablecoin market landscape, with the potential to allow US banks to issue US dollar-pegged stablecoins.

Introduced on April 17, the Payment Stablecoin Act has sparked interest among financial institutions and market observers alike.

In a research note dated April 23, S&P Global Ratings suggested that the bill could spur increased participation from banks in the stablecoin sector. This shift could impact prominent non-US stablecoin issuers like Tether, which currently boasts a market cap of $110 billion.

The bill proposes a $10 billion cap on issuance by non-bank stablecoin firms and prohibits the creation of "unbacked" algorithmic stablecoins. Additionally, it mandates that stablecoin issuers maintain one-to-one cash or cash-equivalent reserves.

S&P Global Ratings indicated that if the bill is enacted and subsequent banking regulations are introduced, banks could gain a competitive advantage. Entities without a banking license would be limited to issuing no more than $10 billion in stablecoins, potentially constraining the activities of major players like Tether.

Tether, a leading stablecoin by volume, is issued by a non-US entity and would not comply with the provisions outlined in the Payment Stablecoin Act. This lack of compliance would hinder US entities from holding or transacting in Tether, likely reducing its demand while favoring stablecoins issued within the US.

S&P highlighted that the majority of Tether's transactions occur outside of the US and are primarily driven by retail, remittances, and transactions in emerging economies.

Upon introducing the bill, Democratic Senator Kirsten Gillibrand emphasized the importance of establishing a regulatory framework for stablecoins to safeguard the dominance of the US dollar, foster responsible innovation, protect consumers, and combat money laundering and illicit finance.

However, not all stakeholders welcomed the proposed changes brought forth by the bill.

Coin Center, a crypto advocacy organization, expressed reservations about the legislation, arguing that banning algorithmic stablecoins would be "bad policy" and constitute an unconstitutional violation of the First Amendment.